Gabriel Lalonde
January 19th, 2022

Life vs. Living Benefits – Are They the Same?

There are different types of protection for various risks

Life insurance and living benefit product are not the same. While the former pays a benefit only upon death, the latter pays only upon an illness or disability. Depending on the product you choose, the insurance company will analyze your risk and how it affects your insurance premiums.

An Ottawa CFP will be better positioned to offer professional advice. Yet, this article helps you understand how insurance underwriters assess the risks for various types of coverage.

Life Insurance

Mortality or end of life is the underwriting endpoint of life insurance. That is what the insurer’s underwriter looks out for when assessing your risk. What are the effects of information gathering, medical, financial, and lifestyle on longevity? Canada’s average life expectancy in 2020 was 80 years and 84 years for men and women, respectively. The combined average was 82 years – seven years more than what was recorded in 1981 (75.5 years). Thus, we have seen a drop in life insurance premiums. Coverages are also becoming more affordable for everyone, including the younger, healthy people. The new AI-powered smart life insurance applications make things even easier. They use higher non-fluid limits and risk-sensitive algorithms to help beneficiaries choose the right life coverage.

Disability Insurance

Disability Insurance (DI) offers a different type of protection. The insurer’s underwriter considers illness or morbidity and how it affects the ability to work. So, any condition that may reduce or remove that ability (disabling) is very crucial. It doesn’t matter if the condition is not life-threatening and possibly unfit for life insurance underwriting. Disability insurance allows the insured to submit many claims within the coverage duration. DI underwriters tackle the multiple claims potential of disability insurance differently. For example, they use certain impairment exclusions, limited benefit-payment periods, and extended benefit waiting periods, depending on the peculiarity of the situation. That way, DI insurers can provide protection for more clients with some modifications.

Critical Illness Insurance

Critical Illness (CI) protection does not consider mortality or morbidity. Instead, its underwriting endpoint is a diagnosis of a covered illness with a short survival period. The pricing depends on the incidence of disease, as indicated by the chances of a particular medical condition. For instance, a myocardial infarction (heart attack) patient can be diagnosed and cleared to return to work within a few weeks or months. In that case, the survivor is still eligible for the policy benefit.

Considering basic diagnosis is the underwriting endpoint here, CI underwriting hammers more on risk factors and family history. They focus more on existing health conditions like high blood pressure and lifestyle habits like smoking. Even under more scrutiny is the family history, which offers insight into a predisposition to a certain covered illness or illnesses, especially with the Genetic Non-Discrimination Act (GNA) of 2017. The GNA prohibits insurers from using genetic test results except expressly authorized by the client.

Driving home the points with a practical example

Let’s access a situation from the perspective of life insurance vs. living benefits underwriting. Many illnesses fit the bill, but let’s choose mood disorders like depression. Depression has various severity levels, and it can have devastating effects at very severe levels. For instance, it can lead to suicide – a precipitating situation for a life insurance claim. Disability underwriting tends toward the ability to work. According to statistics, about 12 billion lost days of work globally every year is due to depression. About 500,000 workers miss work each week because of mental health issues in Canada in 2020. From these numbers, it is clear that disability underwriting requires a more conservative approach. Potential multiple claims and longer work absences will most likely occur in any disability insurance application reporting a history of depression and similar mood disorders. Therefore, the insurer’s underwriter considers that during risk assessment and premium determination.

Insurers adopt different approaches when assessing risk for life and living benefits coverage. However, consulting an Ottawa Certified Financial Planner can put you a step ahead. They can help you understand your coverage needs and the approach your insurers may adopt in assessing your risk for a particular type of protection.

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